How to start investing in P2P Lending in 2019

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How to start investing in P2P Lending

You probably have heard of P2P Lending! It is the new trend of investing these days. A lot of people are investing and some people are even using it as their sole investing instrument.

When I created my Investor Policy Statement, I stated that I could consider investing between 5% and 10% of my net worth outside of stocks. Therefore, I decided to start researching P2P Lending. And after a while, I decided to start to invest some money.

I have not invested a lot of money into it yet. And I do not plan to invest a lot of money at all. This is just some small diversification. I believe this could not replace stock investing. And I believe this is riskier.

In this post, we are going to see the basics of P2P Lending. And I am going to detail my current investments.

P2P Lending

If you do not yet know what P2P Lending, it is actually quite simple. The idea is to lend money to borrowers at a certain interest rate. While you could directly lend money to some people you know, there are platforms that are easing this.

Most P2P lending platforms are acting as intermediaries between lenders and borrowers. A borrower can ask for a loan on the platform. And lenders can participate in that loan. A great thing is that several lenders can participate in the same loan. This allows for small loans from lenders and high diversification. This simple model is called a three-party business model.

In the biggest platforms, the loans are not coming directly from borrowers. They are coming from loan originators. These are companies that are issuing loans. They are then filling these loans into the P2P Lending platform. And the platform is then matching lenders and borrowers. This more complex model is called a four-party business model.

Advantages of P2P Lending

We should discuss the advantages of P2P lending. Why would we invest in it instead of stocks?

First of all, the returns can be quite high. It is not uncommon to find loans with more than 10% interest. In general, yearly returns of P2P Lending are higher than those of the stock market.

Another advantage is the added diversification. There is not a big correlation between stocks and P2P lending. Therefore, diversifying into a new uncorrelated asset could help your overall portfolio.

Also, fees are generally reasonably low for investors. And you can often invest with as little as 10 CHF. It is very easy to start investing in P2P Lending. It is much easier than investing in stocks.

Risks of P2P Lending

As with every other investment, there are risks when investing in P2p Loans. There are several risks related to P2P lending.

The first risk is that the borrower defaults. This means that the borrower cannot repay its loan. If you were lending the money directly to the borrower, you would lose your money. However, in most platforms, there is something called the Buyback Guarantee. It means that the loan originator will repay what you lent and will cover the loss. If your loan has a buyback guarantee, you are safe from this risk.

The second risk is that the loan originator defaults. This means that the loan originator cannot pay back the buyback guarantee to you if too many of its borrowers are defaulting. In my opinion, this is the biggest risk in P2P lending. However, it is more frequent for a borrower to default than for a loan originator. In this case, there is almost nothing you can do. You may get back some of your money after a long legal procedure. But it is going to be difficult.

The last risk is that the platform itself goes bust. Normally, you should not lose money on this case. However, it may be complicated to get your money back. And it will also depend on how the platform is protecting you against this. In good platforms, the loans are directly related to you and hence you are still entitled to the principal and the interests if the platform goes bust. Nevertheless, I am expecting it may take a very long time to get the money back.

As you can see, there are quite some risks when investing in P2P Lending. It can be compared to investing in single stocks. For me, it is much riskier than investing in low-cost index ETFs.

Tips to invest

All the risks from the previous sections can be mitigated by diversifying your loans.

First, you should always diversify across borrowers. You should avoid lending a very large sum of money to a few borrowers. You should try to lend very little money to many borrowers. And if you can, you should try to invest in loans with buyback guarantee. This will protect you from a borrower defaulting.

Then, you should also try to diversify across loan originators. This is only possible if you invest in a four-party platform. If you only invest 10% of your money in each loan originator, you would only lose 10% in case one loan originator goes bankrupt.

Finally, I also believe you should diversify across platforms. There are many possible P2P platforms available. There are several in each country actually.

P2P lending in Switzerland

At first, I wanted to invest in Switzerland. So, I checked the main platforms available here. Even though Switzerland is quite small, there are still more than 15 platforms available. I have not checked them all out. I have only focused on the one that seems the most popular.

cashare.ch is the oldest platform available in Switzerland. You can start to invest with 100 CHF. This is the minimum per loan. You will pay 0.75% fees on your loans. It has about 30’000 members. They have loans from 3.9% to 9.9%. They are managing more than 880 millions CHF of loans.

creditgate24.ch is another younger alternative. You will pay 1% fees on your loans. It has about 15’000 members. They are managing about 200 millions CHF of loans. The minimum to invest per project is 500 CHF. Their loans are between 4% and 7.5%. The minimum is too high for me. It would be too difficult to diversify.

crowd4cash.ch is another alternative. You will pay 0.85% of fees. The minimum per loan is also 500 CHF. They offer loans with interest rates between 3.5% and 8.5%. They have less than 2000 users and are managing about 27 millions CHF of loans. For me, this is simply too small.

Lend.ch is a serious alternative, backed by big banks such as PostFinance. They offer loans from 3.88% to 7.39%. They have fees of  1% per year you lend money. This is pretty bad for long-term loans. They already have 20’000 users and are managing more than 200 million CHF. Finally, the minimum investment is 1000 CHF. Which is a big deal breaker!

Overall, Swiss options are not great. For me, the only correct platform is cashare.ch. It is the only allowing investments of 100 CHF for diversification. But the fees of 0.75% are pretty bad on top of loans that do not have high interest rates. And none of them have any buyback guarantee. However, this really beats Swiss bank interest rates. However, they have a much higher risk.

If you know of any other better option in Switzerland, let me know!

However, there are also many options in Europe. I cannot list all of them because there are way too many. However, I am going to talk about the two I started investing in.

Fast Invest

FastInvest is the first platform I started investing in. In fact, this is the first platform I have heard of. However, I just started investing in it without proper research. This is not great on my part.

FastInvest is a P2P Lending platform with a four-party business model. This means you will be connected to loan originators and not directly to borrowers.

It is a Lithuanian company, registered in the United Kingdom. They have about 30’000 users and manage about 15 million euros. You can invest without any fee.

You have access to rates between 9% and 16% interest. But I have not seen a loan with more than 13% in a long time. All the loans have a buyback guarantee. After 3 days late only, you will be repaid for your loan. And you can sell your loans at any time. But in that case, you will lose your interest.

I have only invested 700 EUR since October 2018. So far, it returned 36 EUR. This about 5.2% return, or an annualized return of 8.93%. It is not bad but not that great either. However, the low returns are also due to the fact that I stopped investing for a while.

My P2P Performance at FastInvest
My P2P Performance at FastInvest

I have some doubts about FastInvest. The big problem I have with them is that they do not disclose the identity of their loan originators. This means you do not know to which you are lending money at all. This is the reason I started investing in another platform for more diversification.

Now, I do not think FastInvest is a bad option. You should just be careful about it. And you should diversify over other platforms as well.

Mintos

After I started having some doubts with FastInvest, I started investing in Mintos.

Mintos is also using the same model as FastInvest, with four-party. However, Mintos has many loan originators and is disclosing information about all of them.

Mintos is a Latvian company. It is currently the largest P2P Lending platform in Europe. It has more than 140’000 users and manages more than two billions EUR.

There are many different rates. The overall rate is about 12%. It is currently slightly higher than FastInvest but not by a long shot. You can choose in which loan originators you invest. Some of the originators have a buyback guarantee. You can choose to only invest in originators with buyback guarantee. This is what I did. When a loan is late for more than 60 days, you will be refunded your investment.

I have started in mid-April 2018 and I have invested 700 EUR to match my investments at FastInvest. So far, it returned 6.13 EUR. I am not sure of how the 12.9% Net Annual Return from Mintos is calculated. I think I am more in the 10%.

My P2P Performance at Mintos
My P2P Performance at Mintos

Overall, I am pretty satisfied with Mintos. I think it is superior to FastInvest. I am not sure this is the best option. But this is the best I could come up with the little research I did.

My P2P Lending Strategy

I do not have a very well designed P2P Lending strategy honestly. I plan to invest no more than 2.5% of our net worth into it.

What I am trying to do is to diversify as much as possible. I am only investing 10 EUR in each loan. And I am only investing in loans with buyback guarantee. I am also diversifying over various loan originators.

I do not know yet if I will keep both platforms. For now, I plan to invest 200 EUR each month into Mintos. If I find a better platform, I will either replace FastInvest or add a third platform to my portfolio.

In any case, do not forget to secure your account! You want a long password and you want to use Two-Factor Authentication (2FA), available for both services I mentioned.

Conclusion

I think that P2P Lending is interesting. However, it lacks some regulations and the risks are higher than passive investing in stocks. So I would not recommend investing a large part of your portfolio into it.

I know there are some people who invest everything into P2P lending. But I do not think it is a very good idea even if they diversify over several platforms. And there are also some people who are strongly against P2P Lending. I am probably in the middle.

But it is still interesting and it offers some diversification over investing in the stock market. This is a great thing. It is good to own uncorrelated assets.

If you do not know where to start, I would recommend investing a small amount of money in Mintos to try it. Remember that there are risks even with a buyback guarantee. Be careful not to invest too much.

What about you? What do you think about P2P Lending?

Mr. The Poor Swiss

Mr. The Poor Swiss is the author behind thepoorswiss.com. In 2017, he realized that he was falling into the trap of lifestyle inflation. He decided to cut on his expenses and increase his income. This blog is relating his story and findings. In 2019, he is saving more than 50% of his income. He made it a goal to reach Financial Independence. You can send Mr. The Poor Swiss a message here.

27 thoughts on “How to start investing in P2P Lending in 2019”

  1. Hi Mr. The Poor Swiss,

    one question regarding Mintos. I’ve read it 3 times, but I still don’t get it, how is 6.13 Eur annual return for 700 eur 10%?

    1. Hi Andras,

      That’s a good question! The problem is that I did not invest 700 EUR at once. I invested several times during the times. Moreover, an entire year has not yet passed. This makes it more difficult to calculate the returns.
      Generally, people use a function called XIRR for this. This is specially made for irregular investments with irregular returns.

      Does that make sense?

    1. I am interested in getting into P2P. I think its a nice way to diversify. I would keep my exposure low. However, I second the question above. How does taxation work? especially if the loan defaults.

      1. Hi Dividendgeek,

        I agree that it’s a nice way to get some diversity. However, I would not invest solely in P2P lending.
        As for taxation, this is only valid for Switzerland, but you can take a look at my answer to Mauro’s question. Basically, I would think it’s treated as a bank account.

        Thanks for stopping by!

    2. Hi Mauro,

      To be honest, I am not entirely certain. I have not found a precise source about this. However, I know people that invest in P2P lending in Switzerland and they all counted their returns as interests like those of a bank account.
      I think you should declare your P2P accounts like bank accounts and the returns as interests. Just don’t forget to convert into CHF.

      If anybody has a full explanation and an official source, I would like to know about it :)

      Thanks for stopping by Mauro!

  2. I want to share some of my knowledge here as well. I Invested around 20k in Cashare and 10k CreditGate24 2 years ago.
    Currently the issue with Cashare is that you pay basically the complete fee in advance which is quite annoying. In addition from my 25 total investments around 5 are not able to pay and are in the “Betreibungs” process. If you are lucky the people are having a salary which can be use to ‘forcefully’ down pay the open debt otherwise it will be checked each half year again. So you have to diversify a lot by yourself.
    Now to CreditGate24. The good thing is that even if you have to invest 500 bucks you invest that basically in a risk rating group. Which means if you invest in a project with as risk rating B the risk to fail will be split by all investments in this rating group. So lets say someone is not able to pay the debt then this amount will be split by all people which are invested in other contracts with rating B. I think not so long ago someone was not able to pay a rating C credit for about 4k CHF this resulted in that I had to pay 0.4 CHF out of my portfolio. As you see the diversification is way better than for Cashare. Here you have to read through the page again and update your post :). So in case I would invest again in P2P I would definitely pick CreditGate24 because of the risk diversification.

    1. Hi Mascap,

      Thanks a lot for sharing your knowledge! Would you mind sharing your returns over these 2 years?

      I didn’t know about the risk sharing groups in CreditGate24. This seems like a very interesting way to manage risk. It really helps since by default you do not have a lot of diversification since you need big investments in each projects.

      I will try to integrate some of this in my next update of the post!

      1. Sure:
        Cashare shows areound 5.7% return with the so called XIRR method (Extended Internal Rate of Return). They claim that this includes all fees, collection measures etc.
        -> Total Investments 20650 (pending 9200), Platform Fees 333, Received Interest 2693. However I have 425 under monitoring (not able to pay which will checked every half year for 20 years) and 1408 under collection (inkasso). So feel free to do the math and crosscheck :)

        Creditgate
        Total Investment 11100 (pending 5100), Income 1718, Expenses -131, Deduction of solidarity contribution -160 and credit of solidarity contribution +398

        1. Thanks a lot for sharing Mascap,

          It does seem quite good. For keeping in CHF, it seems really nice. If I could invest only a little, I would definitely consider investing in Swiss products.
          Actually for computing the XIRR, I would need the entire history of investments and returns ;) That’s how it works! But I will trust Cashare on that one ;)

          What you call pending are your future investments?
          And solidarity contribution is the risk-sharing system? Seems you were lucky ;)

          Cheers!

        2. If I may ask, was this investment of 11k and income of 1718 during 2 years? The expenses and solidarity things were payed from the 1718 income or your income is already the net income?
          Even though you have at Cashare 5 not paying loans, are you still satisfied with it or you like Creditgate more?

          1. @Mr. TPS
            Ah, thanks for letting me know – haven’t thought about the calculation ;). Pending is the amount which is still outstanding and not payed back yet. (see https://ibb.co/kygTCZD) Exactly I was lucky so far but that is the big point what is really a pitty on cashare that you don’t have a shared risk. On CreditGate you basically just need to invest an small amount in one project in each risk category and the problem is solved. Really convenient.

            @Andras
            If I invest further I will only choose CreditGate24 and not Cashare anymore. It is just to much of a pain to diversify your portfolio to spread the risk. But maybe I was just unlucky. Regarding the numbers the 1.7k is the total so the received is only around 1.2k since I started (see previous image) – my fault here sorry for the missleading information. My investments were done between January 2017 and July 2017. Currently on the dashboard (I saw today that they have a new one) they proclaim that I have a rate of return from 5.56%. But I don’t know what they include in the calculation. And here you see what they report monthly https://ibb.co/5TxSrCs.

          2. Thanks a lot for all these details Mascap!

            From what I have seen now, it seems that CreditGate24 is indeed superior to Cashare. And it’s actually more interesting than I thought. I will probably try to invest in the future, maybe next year.

            Thanks :)

  3. Somehow related to this article, what about the crowdfunding in real estate? For example Foxstone in Switzerland or Homunity in France.
    A good way to invest in real estate without having to manage the bureaucracy and the tenants?
    I wonder how such an investment is treated by the swiss tax office…

    1. Hi Ghislain,

      Good question!

      I plan to talk about that later on the blog. I am also running an experiment with that. I am currently trying out Crowdestate but I am considering others as well.
      The problems with Crowdinvesting Real Estate platforms in Switzerland is that they have a very high entry point and not very returns.

      I think it’s a great way to get a foot in real estate without too many issues.

      I didn’t know these two examples, I will definitely check them out.

      I would say that it’s treated the same as a bank account, for now. This will probably change once more people are starting to invest.

      Thanks for stopping by!

      1. Hi Mr. The Poor Swiss,

        Yes you are right about the high entry point, e.g. 50 000 CHF for Foxstone (by the way, there is also a reportage made by RTS about them).
        In France, the entry point looks more reasonable.
        I still question myself about the tax aspect because in some cases you are a co-owner and you get some rent, so more related to revenue tax than to the fortune tax?

        Cheers,
        Ghislain

        1. Hi,

          Wow, 50’000 is just insane… No way you can diversify anything with that minimum investment :(
          I think there are some regulations in Switzerland that makes entry point higher. But there is also a huge bias towards rich people.

          That’s a good question, but I don’t know. For now, I think it’s still too new for tax office to really decide. But I agree that some could go to income.
          The best way to know is to call your tax office.

          Thanks a lot for sharing!

  4. Hi just wanted to give some feedback about lend, I’ve about 10’000 CHF there, diversified because my earl investment where before the 1000 CHF mark and until now I was lucky. All paid and 3.5% return.

  5. Your post makes me very concerned about my own asset allocation. I have about 75% in P2P instruments. 😱

    Stocks are great in that you actually own the business. With a claim to a loan, you don’t actually own much. And the direct/indirect arrangements mean a lot in terms of your risk.

    Platform risk is IMO the big one to look out for. The platform will go to great lengths to not have any investor lose their money (if they have buyback guarantee).

    I don’t therefore completely agree with always preferring buyback guarantees. Platforms that don’t have them might be more protected against bad debt. This is one of the reasons I’m fond of Bondora (https://www.thewealthyfinn.com/2019/05/bondora-review.html) and why I like it that they don’t have buyback guarantees.

    However, you should always go with skin-in-the-game kind loan originators. Otherwise the interest dynamics is all wrong.

    But, I do agree that my portfolio is likely way too risky. I am in the process of re-balancing between stocks, home, P2P and real estate.

    1. Hi Eelis,

      Wow, I wouldn’t be comfortable with 75%! But that’s only my point of view. There are people 100% in P2P lending and that do just fine.

      But your passive income is absolutely impressive! 2000 EUR in a single month from mostly P2P Lending is pretty nice!

      That’s a good point. Some platforms can be well protected and as such would not necessarily need buyback guarantees. These are just different ways of managing risks. Then the investor has to choose which way he’s more comfortable with.

      How long have you been investing in P2P Lending?

      Thanks for stopping by!

  6. Dear TPS, I feel like I was waiting for such post from you and now I wish to share some doubts about entire investing in to such engines.
    Low interest rates have sent many investors flooding into riskier asset classes that provide the potential for higher yields and returns.
    Yield-seeking investors started off by buying the most reliable dividend payers like Coca-Cola. Their buying activity pushed the prices higher. No surprise there, the market works this way. What’s next? In terms of quality, yield-seekers turned their attention to the next layer of stocks and kept buying them until their enthusiasm sent the prices higher and pushed the yields lower in that segment as well. Now fast forward several years, and you can imagine which ‘layer of quality’ these desperate yield-seekers are mining nowadays when looking for attractive yields. In fact, in today’s market, many of the investments that are needed to achieve high yield are one single misstep away from trouble. Of course, it’s always your decision: do you want safety and peace of mind, or are you reaching for yield regardless of the elevated risks in today’s market?
    Keep away from the speculative activities that may win the short-term popularity contest but will most likely fail the test of time.

    1. Hi baseldon,

      I completely agree with your analysis. I think that dividend-paying stocks are very nice. But they have been grossly inflated just for having good dividend yields. And this is not great of course since then the yields are lowered.
      And I also completely agree with you that P2P lending is riskier than the stock market.
      I still believe it is an interesting asset to have but I would not allocate more than 5% or 10% of my portfolio to it. I will probably invest less than that. I do not plan to increase this percentage.

      I am not really reaching for yields (although the idea crossed my mind, let’s be honest). But I think this could a nice diversification of my investments. And this is actually part of my Investor Policy Statement to be able to invest between 5% and 10% of my money in diversified assets.

      Thanks for stopping by! And thanks for caring for my financial health :)

  7. I have about 1k of loans invested in Ratesetter. They’re a UK platform but operate in Australia too. Returns are not bad, about 7.5-8% if invested in the 5 year market.

    What I particularly like about their outfit is their Provision Fund. If a debt goes bad, the investor is able to claim on the fund to be repaid. So far they claim no one has been left out of pocket. Good enough for me! But of course P2P won’t be replacing my other investments.

    Not sure how it all works in Switzerland, are you able to access other UK or European P2P lending platforms?

    1. Hi Ms. FireMum,

      I didn’t know about Ratesetter. It sounds interesting. About 8% is already very interesting. The Provision Fund looks really interesting. One of the P2P Lending platforms has a solidarity contribution in case of default. That means that the defaults are propagated against everyone. This is also a good system I think.

      There are so many different P2P platforms, this is crazy.
      I do not know about the UK, but we are able to sign up for most European P2P Lending platforms. Although, there are some that have started to refuse Swiss investors because the laws in Switzerland are different than in Europe. But for now, we have a great choice.

      How much choice do you get, in Australia?

      Thanks for stopping by!

      1. Not much choice here. We have 4-5 platforms, but realistically only a couple are available to retail investors. Barriers to entry for offering lending to investors are high, unfortunately. Much cheaper and easier for platforms to chase sophisticated investor or institutional investor money.

        1. It seems that we have more choice here. I guess we are lucky to be in the middle of the EU where there are tons of these projects. There are probably way too much of them currently.

          Why do you say that barriers to entry are high? Are the minimum investments very high?

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